Opportunities abound for Dragon investors

By: Caroline Allen | 06 Feb 2012

The Chinese Year of the Dragon promises drama across the world, yet the opening weeks of 2012 are throwing up some surprising investment opportunities.

In capitals across the world, Chinese New Year on 23 ­January was marked with extravagant parades and f­ireworks, celebrating the arrival of the Year of the Dragon and the powerful energy and ambition it promises for 2012. The idea of financial influence moving from West to East is widely accepted (one of the Dragon tenets for this year, along with systemic decline in Europe, is that the West will “eat itself to death”), so investors are certainly alive to a resurgent China.

Those ready to seize opportunities early are likely to make the greatest gains, and the Year of the Dragon is said to favour risk-takers unafraid of challenges, prepared to forge their way alone. Perhaps investors have caught that mood, or maybe it is simply that after months of muddle and disillusion across most markets, they want something positive to work on.

The benchmark Bank of America Merrill Lynch Survey of Fund Managers for January, which polls 214 institutional investors managing $655bn, shows global investors started 2012 with a “reawakened sense of optimism towards the global economy and greater appetite for risk”.

Far fewer are now predicting a global slowdown. Only a net 3% believe the world economy will weaken in the coming 12 months, down from a net 27% in December, the largest one-month improvement in the growth ­outlook since May 2009.

BofA Merrill Lynch’s Composite Risk and Liquidity Indicator is also at its highest since July 2011 before the sovereign debt crisis fully emerged. Cash levels have fallen to their lowest since then and now make up 4.4% of a portfolio on average, compared to 4.9% in December. The proportion of investors taking lower than normal levels of risk has improved to a net 33% of the panel, compared to a net 42% in December.

But it is not exactly a ‘risk-on’ reversal of sentiment. “Investors are tip-toeing rather than hurtling towards higher risk exposure,” says Michael Hartnett, chief global equity strategist at BofA Merrill Lynch Global Research.